Taking a personal loan for the first time can feel a little overwhelming. Although it gives you quick access to money when you need it- be it for a wedding, a medical emergency or even for your house renovation. On the other hand, the entire loan process can be a little complicated if you are a first time borrower. You also may have questions like “How much should I borrow?”, “Will my first bank online loan application get approved?” or “What if I can’t pay on time?” as a first-time applicant.
Because there are multiple (although not a lot) steps involved, not being prepared for your loan application can get your rejected for your personal loan application. Also, a loan rejection negatively affects your credit record. That is why you should prepare before applying for a personal loan. You should know the right amount to apply for, all the documents you need so that you can have a smooth loan approval process and make repayment easier.
Let us go step by step and understand how you can prepare for your first personal loan application.
Know the Basics Before You Apply
Before applying for your first bank online loan application, it is very important to know how it actually works. A personal loan is repaid in fixed monthly instalments which are also known as EMIs.
An EMI includes two parts- the principal amount and interest which is the extra amount you pay the bank for lending you money. The EMI depends mainly on three things:
Loan amount: This is the principal amount (how much you borrow)
Interest rate: This is the rate at which you get your loan (depends on your income, credit score and policies)
Tenure: The time period for which you are getting the loan (usually ranging from 1 to 5 years)
Understanding these basics is very important because you need to know how much you will pay every month and whether it fits into your budget. Let us understand this with an example. Let's suppose you want to borrow ₹2 lakh at an interest rate of 12% for 3 years. This will give you a very different EMI compared to borrowing it for 5 years.
Remember, personal loans are unsecured loans. This means you are fully responsible for repayment and you are not pledging any security. Missing payments will incur penalty charges and also impact your credit score.
Check Your Finances and Eligibility
This second step is like doing a self-check before applying with a bank or an NBFC. This is called as checking your loan eligibility
So, how do you do that?
First, calculate your monthly income and expenses. Account for any existing EMIs (for bike loans, education loans, or credit card dues). Your new personal loan EMI should not have a major impact on your monthly budget. A general rule of thumb is that your total EMIs (including the new one) should not cross 40%–50% of your monthly income.
For example, if you earn ₹25,000 per month and already pay ₹5,000 as bike EMI, you should not take another loan with EMI above ₹7,500. Anything more will make it difficult to handle routine costs.
Next, know how much money you actually need. Many first-time borrowers make the mistake of borrowing more than they need. If your need is ₹1.5 lakh, then do not apply for ₹3 lakh just because the bank offers it. A higher loan means a higher EMI and interest.
Credit score is another key thing. It is a three-digit number, usually between 300–900 that shows your repayment history. Above 750 is considered good. A low score means higher interest rates or sometimes even direct rejection.
Other factors lenders check include your age (usually 21 to 60 years), type of employment, monthly income, and also place of residence.
Knowing these points in advance will help you get approval with fewer chances of loan rejection.
Get Your Documents and Application Ready
If you have incomplete documents, your personal loan application will most certainly be delayed. This is because banks and NBFCs check your documents to check your profile
They usually ask for:
- Proof of identity (PAN, Aadhaar, voter card, passport)
- Address proof (utility bills, Aadhaar)
- Income proof (salary slips, bank statements, tax returns
- Employment proof (ID card, joining letter, etc.)
For salaried people, lenders usually ask for 3 months' recent salary slips and bank statements. For the self-employed, IT returns or GST records are mostly requested.
Keep your documents updated and scanned for faster loan processing. Missing even one item can cause back and forth with the lender, which slows everything down.
Compare Loan Options and Choose Wisely
Many first-time borrowers directly apply to their own bank without comparing. This mistake could result in higher EMIs or stricter repayment terms.
Instead, spend some time comparing personal loan offers from at least 3 to 4 lenders. Points you should compare include:
- Interest rate: Even a difference of 1% can save you a lot of money over time.
- Processing fees: Most banks charge 1–3% of the loan amount as a one-time fee.
- Prepayment or foreclosure charges: If you get money early and want to close your loan, some banks allow it with low or zero charges. Although other banks or NBFCs may penalise you.
- Flexibility in repayment: For example some lenders let you postpone one EMI in case of an emergency.
Online EMI calculators make it simple to check how much you will pay. Enter the loan amount, tenure and rate, and you instantly get your EMI. For example, if you borrow ₹1 lakh for 2 years at 12%, the EMI will be around ₹4,700. For 5 years EMI is about ₹2,200 but the total interest paid becomes much higher in the long run.
Avoid Common Mistakes and Plan Repayments
Being a first-time borrower, you must be extra careful. Some common mistakes people make include:
- Applying with too many lenders at once: Every application goes into your credit record. Multiple applications give the impression that you are not responsible and may lower your credit score.
- Overborrowing: Taking more money than needed increases EMI pressure and repayment difficulties.
- Ignoring hidden charges: Apart from interest rates, personal loans may have processing fees, late payment penalties and insurance charges.
Once you finalise your loan, plan your repayment. One easy way is to set up an auto-debit facility through your bank. This will make sure your EMI is deducted automatically every month. Make sure to not miss any EMI because one missed EMI may seem small but it can impact your credit report for years.
Conclusion
Applying for your first personal loan may seem tough at first but if you are prepared, then it becomes much easier. Start by understanding the basics of how loans work. Learn about interest rates, tenure and EMI. Then, know how much amount you really need. Keep your documents ready to avoid delays and take time to compare lenders rather than rushing into the first offer. Avoid mistakes like overborrowing or missing EMIs.
Shriram Finance provides personal loans at competitive interest rates and with flexible loan tenures. For more information on personal loan interest rates and other terms and conditions, please visit our website.
FAQs
What documents do I need to apply for my first personal loan?
Basic KYC documents like Aadhaar PAN, or passport for identity verification. You will also need address proof, such as bills or driving licence. For income proof you will need salary slips, bank statements or IT returns.
How can I check my credit score before applying?
You can check it online from bureaus like CIBIL, Experian, CRIF or Equifax. It’s wise to review your score a few months before applying so if it’s low, you can work on improving it.
What factors do lenders consider when reviewing my loan application?
Lenders mainly look at your credit score. They also look at income level job status, and age. They also check your existing loans and monthly expenses.
What are the common mistakes to avoid during the loan application process?
Common mistakes include applying with too many lenders at once, borrowing more than needed, ignoring hidden fees, or giving incomplete documents
How can I improve my chances of getting approved?
Keep your credit score above 750. Apply only for an amount you actually need and ensure your total EMIs, do not exceed 40–50% of monthly income.
What are the interest rates and repayment terms I should understand?
It varies from lender to lender. Mostly personal loans start at 10% p.a. Repayment is in EMIs ranging from 1-5 years. But it is advisable to check with your lender before applying.
How does my income and employment status affect my application?
If you have a stable income, of course that will give lenders some confidence in your profile. Higher income with low EMIs improves your chances a lot.